Microsoft: Out of the X Box

How Bill Gates built his new game machine--and changed your living room forever

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Right now you can use Xbox Live to talk to people you're playing with via voice chat--think free long distance over the Internet. Soon you will also be able to send e-mail and instant messages. If you have a camera peripheral, you will be able to send short video messages and even videoconference. And here's an important point: with Xbox 360, you don't even have to be playing a game. You will be able to chat with other people over Xbox Live when you're just plain watching TV. The words appear over the show, or you can chat aloud using a headset. That is, arguably, much more useful than actually playing games. Gates is so stoked about it, he can't believe other companies haven't done it before him. "If there's anything we're confused about, about what Sony's thinking, it's when do they get their act together on the equivalent of Live?"


Let's not miss what's happening here. Microsoft, a company known primarily for making highly profitable business software, has put a box in your living room. It entered your house under the humble pretense of being a game machine, a toy for the kids, but it just ate your CD player and your DVD player, and it's looking hungrily at your telephone. It's all up in your media cabinet. It's talking to your iPod, your digital camera, your TV, your stereo, your PC, your credit card and the Internet. It has created a miniature electronic ecosystem inside your home, with itself at the center.

Games are just the condiment. This is the main course, and it's what Gates is really after. Games just get you in the door. "You can't just sell it as a convergence device," Gates says. "You gotta get in there because certain members of the family [i.e., teenage boys] think it's a must-have type thing. But the way to cement it is as a family experience. And the way that it really makes sense for Microsoft, and we justify this sort of circuitous route that we went down, is because of how it fits in the living room."

Gates is anxious that the extent of his ambitions not be overstated: "Think of it as not taking over the digital ecosystem but being a prime player in that digital ecosystem." Duly noted. But the question remains: Is Microsoft about to do in the living room with the Xbox 360 what it did in the office with Windows? Will it create a technology so well positioned and well marketed and so devilishly useful that it becomes the de facto standard and creates an insanely profitable quasi-monopoly around itself? As music and movies become more and more digital, the entertainment business is transforming into a software business, and somebody has to build the master platform on which all that software runs, and the hardware through which it flows. Turn to page 13 in your "Book of Xenon," please: "As the world's software leader, Microsoft is among the best suited to enable and capitalize this transformation. This is our opportunity to lose."


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